Evaluate and rank each alternative based on a) payback period, b) net present value (use an 11% discount rate), and c) internal rate of return.
Andrea Prosper, president of Pearl Manufacturing is trying to select the best alternative from four potential investemnts. Each investment involves an initial outlay of $110,000. Their cash flows follow:
Year Northeast Southeast Northwest Southwest
1 $ 20,000 $ 60,000 $ 30,000 $ –
2 25,000 35,000 $ 30,000 –
3 25,000 30,000 $ 30,000 45,000
4 45,000 – $ 30,000 65,000
5 55,000 – $ 30,000 85,000
Evaluate and rank each alternative based on a) payback period, b) net present value (use an 11% discount rate), and c) internal rate of return.
Be sure to show your work in an excel file!
a) What is the Payback Period for for each alternative?
Northeast
Southeast
Northwest
Southwest
Which alternative would you choose using the payback period?
b) What is the Net Present Value for each project using a 11% discount rate?
Northeast
Southeast
Northwest
Southwest
Which alternative would you choose using the NPV using a 11% discount rate?
c) What is the IRR for each Project?
Northeast
Southeast
Northwest
Southwest
Which alternative would you choose using the IRR?
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